Lululemon CEO sets sights on accelerating growth; shares surge

TORONTO (Reuters) - Lululemon Athletica Inc’s (LULU.O) new chief executive pledged on Thursday to speed up the yogawear retailer’s global expansion while avoiding missteps like last year’s embarrassing recall of its trademark yoga pants, helping boost its once high-flying stock.

A Lululemon Athletica logo is seen outside one of the company's stores in New York, December 16, 2013. REUTERS/Shannon Stapleton

Investors, reassured by comments made during a conference call and more optimistic about Lululemon’s long-term prospects, pushed its shares up as much as 10 percent on Thursday. The stock ended 6.2 percent higher at $51.20 on the Nasdaq.

“The guidance on the face of it seemed weak - below the consensus expectations that are out there - but I think there’s a view that management is being conservative,” said ITG Investment Research retail analyst Matthew Jacob.

He said there was also “a little bit of relief that trends could’ve been worse.”

Chief Executive Laurent Potdevin, most recently president of trendy footwear brand TOMS Shoes, was brought in last year with the expectation he would lead Lululemon’s push into Europe and Asia.

His first major public comments as chief executive, which come as the company opens its first European store in London next week, helped solidify that view.

“2014 is an investment year with an emphasis on strengthening our foundation, reigniting our product engine and accelerating sustainable and controlled global expansion,” he said on a conference call.

“I see significant potential to grow both domestically and internationally ... We see clear evidence of demand, both in Asia and Europe, with several countries ready for stores.”

Potdevin said the company was evolving its strategy and will “attack different regions and different countries” simultaneously.

The company, which is banking on London to help showcase the brand in Europe, plans to open a second store in the city by the end of this year. It plans to open up to 42 new stores this year, in line with 2013.

Lululemon also has more than a dozen “showrooms,” or small test boutiques, outside of North America, including six in Asia and nine in Europe. It hopes showrooms in cosmopolitan cities like Hong Kong will lay the groundwork for growth in Asia.

“It’s a brand that I think has tremendous transferability across borders and they shouldn’t really slow down on that opportunity,” said Canaccord Genuity analyst, Camilo Lyon.

Few Canadian retailers have successfully cracked the U.S. market, let alone succeeded internationally.

POTDEVIN’S MISSION

There were several positives from the call that indicated the company’s consumer base was not being eroded, said Lyon, including new-store sales that were performing above average on a per-square-foot basis.

Potdevin, who took the helm in January, also said seasonal products were selling out four times faster than anticipated.

As Potdevin continues to repair Lululemon’s image following the recall of its signature yoga pants that were deemed too see-through, he must also stave off competition.

Rival workout gear makers such as Gap Inc’s (GPS.N) Athleta brand are aiming to take a bite out of a market that Lululemon ostensibly created, with similar products.

“Unlike a few years ago, we are not the only game in town ... we understand that our guests have choice, and sustaining that loyal relationship is a priority,” Potdevin acknowledged.

2014 OUTLOOK

Lululemon forecast lower-than-expected first-quarter and full-year results as it struggled to recover from the March 2013 recall.

In the year since the yoga pants fiasco, Lululemon’s shares slumped 30 percent.

The retailer posted an almost flat year-on-year profit for the fourth quarter of 2013 and reported a decrease in comparable stores sales, its first such fall since 2009.

However, its overall results were marginally better than it had warned in January.

The company forecast first-quarter profit of 31 to 33 cents per share on revenue of $377 million to $382 million and flat total combined comparable store sales.

Analysts, on average, had estimated first-quarter profit of 38 cents per share on revenue of $389.4 million, according to Thomson Reuters I/B/E/S.

For the 2014 fiscal year, Lululemon forecast profit of $1.80 to $1.90 per share on revenue of $1.77 billion to $1.82 billion, based on a total combined same-store sales increase in the low to mid-single digits in percentage terms.

For the full year, analysts had forecast earnings of $2.14 a share and revenue of $1.82 billion.

For the fourth quarter ended February 2, Lululemon earned $109.7 million, or 75 cents per share, compared with $109.4 million, or 75 cents per share, a year earlier.

Analysts, on average, had expected 72 cents per share.

Net revenue increased 7 percent to $521.0 million.

During the fourth quarter, the company added seven new stores for a total of 254 stores internationally, including its standalone store for girls, Ivivva Athletica.